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FLICKINGER v. HAROLD C. BROWN & CO.

March 28, 1991

WILLIAM S. FLICKINGER, PLAINTIFF,
v.
HAROLD C. BROWN & CO., INC. AND BRADFORD BROKER SETTLEMENT, INC. N/K/A FIDATA CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Skretny, District Judge.

  DECISION AND ORDER

Introduction

Plaintiff William S. Flickinger commenced this action against defendants Harold C. Brown & Co. ("Brown") and Bradford Broker Settlement, Inc., n/k/a Fidata Brokerage, Inc. ("FBI"), alleging against each defendant (1) violation of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j, and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5 (First and Fifth Causes of Action), (2) fraud in violation of state law (Second and Sixth Causes of Action), (3) breach of contract (Fifth and Seventh Causes of Action), and (4) breach of fiduciary duty (Fourth and Eighth Causes of Action).

Jurisdiction is predicated on 15 U.S.C. § 78aa and this Court's pendent jurisdiction.

A non-jury trial was held before me on January 3 and January 4, 1991. This matter is now before me for a final decision on the merits.

Conclusion

For the reasons set forth below, judgment is rendered in favor of defendants on all plaintiff's claims.

FINDINGS OF FACT

1) Defendant Brown is a registered securities broker and dealer engaged in the business of providing investment securities advice and services. This includes making arrangements for the purchase and sale of securities to clients. It maintains an office for the transaction of business in Buffalo, New York.

2) Plaintiff William S. Flickinger is an individual who has been a client of Brown for over 20 years.

3) No written agreement exists between plaintiff and Brown or FBI.

4) On or about December 1, 1982, Brown and defendant FBI entered into a "Fully Disclosed Clearing Agreement" ("Agreement") (Exhibit 17), pursuant to which FBI was to execute and clear securities transactions for Brown's clients.

5) In addition to clearing securities transactions, FBI in some cases would keep custody of funds and securities for Brown's clients. In this case, however, Brown had instructed FBI that plaintiff's account was "register and ship." Such designation required FBI to register the securities purchased on behalf of the client in the client's name and to ship the securities to the client at the client's designated address.

6) FBI also sent periodic statements (hereinafter, "activity statements") to Brown's clients at their designated addresses, which statements reflected, for a specified period of time, any activity that had taken place in the client's account for which FBI had performed clearing services. Copies of the activity statements sent by FBI to Brown's clients also were sent by FBI to Brown. Copies of activity statements for plaintiff's account with FBI for the periods of April 30, 1983 through May 27, 1983 (Exhibit 3), May 28, 1983 through June 24, 1983 (Exhibit 4), June 25, 1983 through August 26, 1983 (Exhibit 5), and August 27, 1983 through September 30, 1983 (Exhibit 6) were admitted into evidence at the trial.

7) Plaintiff at no time had any direct dealings with FBI, and was not aware that the Agreement between Brown and FBI existed.

8) In 1974, plaintiff executed an authorization (Exhibit 19) empowering Brown to carry out any instructions received from his brother, Thomas Flickinger ("Thomas"), regarding the buying, selling or delivering of any securities for plaintiff's account. This authorization was in effect throughout 1983, and during that time, Thomas managed plaintiff's securities portfolio, had complete control over plaintiff's account and acted as his agent in most of plaintiff's dealings with Brown. Plaintiff kept no records of his investments, other than recording the dividends he received for tax purposes.

9) On or about June 1, 1983, plaintiff or Thomas instructed Brown to purchase 1500 shares of common stock of Lubrizol Corporation, a registered security, for plaintiff's account.

10) On or about June 1, 1983, Brown instructed FBI to purchase 1500 shares of common stock of Lubrizol Corporation for plaintiff's account.

11) On or about June 1, 1983, FBI purchased 1500 shares of common stock of Lubrizol Corporation for plaintiff's account through a facility of the National Securities Exchange.

12) Exhibit 4, an activity statement for plaintiff's account with FBI, reflects FBI's June 1, 1983 purchase of the 1500 shares of Lubrizol Stock for plaintiff's account.

13) Plaintiff paid $34,125.00 for the 1500 shares of Lubrizol stock and $873.14 in commission.

14) As of August 26, 1983, the 1500 shares of Lubrizol stock were still listed as "BOUGHT RECEIVED OR LONG" (see Exhibit 5), indicating that FBI still had possession of the securities, or owed the securities to plaintiff.

15) Activity statements provided to Brown from FBI regarding plaintiff's account for the period of May 28, 1983 through August 26, 1983 confirmed that plaintiff owned 1500 shares of Lubrizol stock.

16) On or about September 13, 1983, Brown wired FBI to inform FBI that Brown's records indicated that the Lubrizol stock was still being held in safekeeping by FBI. This was in error because plaintiff's account was a "register and ship" account, and Brown therefore requested that FBI mail the securities to plaintiff.

17) Exhibit 6, an activity statement for plaintiff's account with FBI for the period of August 27, 1983 through September 30, 1983, reflects that the 1500 shares of Lubrizol stock were delivered to plaintiff on September 19, 1983. However, plaintiff never ...


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